Alaska Airlines and Virgin America made waves by this week by announcing a merger that would create the fifth-largest airline in the US.
Seattle-based Alaska Airlines announced Monday that it would acquire Virgin America for $2.6 billion after a short bidding war with JetBlue.
Although the acquisition of Virgin America certainly has its merits, the high cost of the transaction and cultural differences between the two companies led some industry analysts to question the wisdom of the deal.
“As an analyst, the deal strikes me as something that’s fraught with peril because of how different these two airlines are,” Forrester Research Vice President Harley Manning told Business Insider.
As a result, Alaska could encounter some major hurdles when it comes to the integration of Virgin America into the company.
Both Virgin and Alaska come highly recommended by their customers, but achieve excellence with radically different offerings.
Manning describes the Alaska experience as clean, friendly, and great value for the price, while the Virgin experience is best categorized as cool, hip, and engaging.
“If you are used to the Virgin America experience, you aren’t going to just jump onto an Alaska plane and be happy with the product,” Manning said.
That is why the Forrester analyst believes that losing the bidding war may be a blessing in disguise for JetBlue.
“JetBlue is full of personality, with a little attitude in a nice way,” Manning added. “It’s got distinctive food and entertainment with a presentation that easily palatable for Virgin customers.”
As a result, Manning expects JetBlue to make major push for loyal Virgin customers looking for a new airline of choice, especially those who frequent the highly lucrative transcontinental routes.
Both Alaska and Virgin are great brands with loyal customers. However, they operate with such different styles that trying to find a happy medium could end up damaging both brands.
According to Manning, making the Alaska Airlines product more hip and trendy could alienate many of its more traditional, value-minded customers. On the other hand, aligning Virgin America’s purple-mood-lighting-drenched experience with Alaska’s traditional presentation will be jarring for its flyers.
Analysts expect Alaska to kill off the Virgin America brand, but figuring out when to make the move will be a real challenge.
“Alaska will struggle to retain many of Virgin’s customers,” Manning said. “But if they pull the plug too soon, the new airline will hemorrhage customers.”
With Richard Branson’s Virgin Group having washed its hands of its US offshoot, Alaska will have to pay to use the Virgin name. But for how long?
“Virgin America will be around for another year or two, but beyond that, the brand is dead,” Airways News senior business analyst Vinay Bhaskara told Business Insider.
Manning’s analysis backs up Bhaskara’s verdict.
Chuckling amid this prospective chaos will be JetBlue, counting the $2.6 billion it didn’t spend — and happily reminding customers of the soon-to-be defunct Virgin America that it, too, has free TV and excellent mood lighting.